How to Start a Tax Preparation Business in Texas

To start a tax preparation business in Texas, you need three things in place before you take on a client: federal credentials from the IRS (a Preparer Tax Identification Number for you, and usually an Electronic Filing Identification Number for the firm), a legal entity registered with the Texas Secretary of State, and a written data security program that meets the FTC Safeguards Rule. Once those are set, you’ll pick up an EIN, calendar the annual franchise tax report, and think about insurance and record retention.

Get Your PTIN First

Anyone paid to prepare or help prepare a federal tax return must have a Preparer Tax Identification Number before working on a single client file.¹ Every preparer in the firm needs one, including employees whose work you review and sign.

You apply through the IRS Tax Professional PTIN System using your Social Security number, personal details, and information from your most recent tax return. The 2026 fee is $18.75, and the PTIN renews annually by December 31, with the renewal window opening each mid-October.²³

Leaving a valid PTIN off a client’s return carries a $50 penalty per occurrence, capped at $25,000 per calendar year, unless you can show reasonable cause.⁴

Get an EFIN If You’ll E-File

If you reasonably expect to file 11 or more individual income tax returns in a calendar year, you’re required to e-file them, which means the firm needs an Electronic Filing Identification Number.⁵ The EFIN is issued to the firm, so one covers every preparer in your office.

Apply through an IRS e-Services account. There’s no fee, but plan for up to 45 days.⁵ The IRS runs a suitability check for criminal history and tax compliance problems. If you’re not already a CPA, attorney, or enrolled agent, you’ll also submit fingerprints through an IRS-authorized vendor at no charge, using a scheduling link that appears on your application summary page.⁶

Start the EFIN application early. The 45-day timeline can quietly become the constraint on when you actually open.

Consider the Annual Filing Season Program

Texas does not license tax preparers, and the IRS does not require a credential beyond the PTIN for someone who prepares returns without representing clients before the agency. If you’re not a CPA, attorney, or enrolled agent, the voluntary Annual Filing Season Program is worth knowing about. Completing it earns a Record of Completion, a listing in the IRS public directory of tax professionals, and limited representation rights before the IRS.

The program requires 18 hours of continuing education each year for non-credentialed preparers:⁷

A 6-hour federal tax refresher course with a knowledge-based test
10 hours of federal tax law topics
2 hours of ethics

You also renew your PTIN and consent to follow the professional conduct standards in Circular 230, Subpart B.⁸ Circular 230 covers competency, diligence, and conflict-of-interest rules, and the IRS can censure, suspend, or disbar practitioners who violate it.⁹

Form a Texas LLC

Most tax preparation businesses organize as limited liability companies for the liability protection. Here’s what forming one looks like in Texas.

Pick a Name That’s Available

Your entity name has to be distinguishable from every other active filing entity or registered foreign entity already on record with the Texas Secretary of State.¹⁰ Check availability by calling (512) 463-5555 or emailing the Corporations Section. If you want to hold a name while you finish the rest of your setup, you can reserve it for 120 days by filing Form 501 with a $40 fee.¹¹

Designate a Registered Agent

Every Texas filing entity must have a registered agent and a registered office in the state.¹² This is the person or company that receives legal notices and service of process for you. The registered office must be a physical Texas address; a P.O. box or virtual mailbox won’t qualify. The agent has to consent in writing or electronically on a form developed by the Secretary of State, and you should keep that consent in your records.

File the Certificate of Formation

An LLC is formed by filing a Certificate of Formation on Form 205, not Form 201 (which is the corporate form).¹³ Form 205 asks for:

The LLC name you selected or reserved
The registered agent’s name and Texas office address
Names and addresses of the initial managers or members
Whether the LLC will be member-managed or manager-managed
The organizer who signs and submits the filing

Management structure is worth thinking through. In a member-managed LLC, every owner can make business decisions. In a manager-managed LLC, only designated managers have that authority, which is the right setup if some owners are passive.

Filing goes through the SOSDirect online portal. The base LLC filing fee is $300.¹⁴ Credit card payments add a statutory 2.7% convenience fee.¹⁵ Standard processing runs several business days. Expedited tiers are available if you’re on a deadline:¹⁶

Standard expedited: $50 per document, plus the filing fee
Next-day: $500 per document, plus the filing fee
Same-day: $750 per document, plus the filing fee

Once approved, the state issues an acknowledgment and a file-stamped copy of your Certificate of Formation. Keep it; you’ll need it for the bank and for the EFIN application.

Write an Operating Agreement

Texas doesn’t require you to file an operating agreement with the state, but you should have one. It’s the internal governance document that spells out how profits and losses are divided, what happens when a member leaves, how disputes are handled, and which decisions need unanimous versus majority approval. Without one, the default rules in the Texas Business Organizations Code will control, and those defaults may not match what you and your co-owners intend. Even a single-member LLC benefits from having one on file.

Get Your EIN After the LLC Exists

Once the state has approved your formation, apply for an Employer Identification Number from the IRS. The IRS recommends forming your state entity first, because applying before the entity exists at the state level can delay processing.¹⁷ The online application is free and issues the EIN immediately. You’ll need the LLC’s legal name, the responsible party’s Social Security number, and the entity type. The EIN is what you’ll use to open a business bank account, file the firm’s tax returns, and connect the entity to your EFIN.

Sales Tax and the Data-Processing Exception

Preparing tax returns is not a taxable service in Texas. The Comptroller has stated directly that preparing federal income tax returns, state franchise tax returns, and sales tax returns — even when done on a computer — is not data processing for sales tax purposes.¹⁸ Using a computer as a tool to perform a professional service doesn’t make the work taxable.

The exception matters if you plan to sell more than tax prep. Standalone payroll processing, data entry, or information compilation are data processing services taxable on 80 percent of the total charge, and selling tax software to clients is also taxable.¹⁹ If any of that is on your menu, you’ll need a Sales and Use Tax Permit by filing Form AP-201 with the Comptroller.²⁰ There’s no application fee, but you become responsible for collecting and remitting sales tax once the permit is active.

Calendar Your Franchise Tax Report

Every LLC formed in Texas owes an annual franchise tax report to the Comptroller, due May 15. For the 2026 and 2027 reporting years, entities with annualized total revenue at or below $2,650,000 owe no tax. Most new tax prep firms will land well under that threshold, but you still have to file the report. A late filing triggers a $50 penalty even when no tax is due, and missing the deadline can put your entity’s good standing with the Secretary of State at risk.²¹ Put May 15 on the calendar from your first full year of operation and don’t move it.

Build Your Data Security Program

Tax preparation firms hold Social Security numbers, income records, and bank details, so federal law treats them as financial institutions. That means the FTC Safeguards Rule applies from day one, and it requires you to develop, implement, and maintain a written information security program with administrative, technical, and physical safeguards. Core requirements include:²²

Encrypting client data both on your systems and in transmission
Multi-factor authentication for anyone accessing client information
Access controls that limit who can view client data, reviewed regularly
A data inventory tracking where client information is collected, stored, and transmitted across devices and platforms
Secure disposal of client records no later than two years after the last use of the information to serve the client, with limited exceptions
A designated Qualified Individual to oversee and implement the program

The IRS also strongly recommends every tax professional maintain a Written Information Security Plan, commonly called a WISP, that spells out how the firm will respond to a breach or security incident.²³ If a breach happens, the IRS wants immediate notice.²⁴

Insurance Worth Buying

Texas doesn’t require tax preparers to carry professional liability insurance, but operating without it is a real financial exposure. Errors-and-omissions coverage responds when a client suffers a financial loss from a mistake on their return, such as a missed deduction, an incorrect filing status, or a transposed number that produces an IRS penalty. Even careful preparers make occasional errors, and a single claim can cost more than years of premiums.

Cyber liability is a separate policy that covers what errors-and-omissions typically excludes: forensic investigation after a breach, client notification, credit monitoring, regulatory fines, and legal defense for privacy claims. Given how much sensitive data a tax firm handles, both are worth budgeting before you take on your first client.

Record Retention

Federal rules require every signing tax return preparer to keep a completed copy of each return, or a record containing the taxpayer’s name, identification number, tax year, and type of return, for at least three years after the close of the return period in which the return was presented for signature.²⁵ Those records have to be available for IRS inspection during that period. When a return becomes due in a period later than when it was signed, the three-year clock starts from the close of the later period.

Many firms hold records longer than the federal minimum because state statutes of limitations and client disputes can surface after three years. Store paper and electronic records consistently with your Safeguards Rule program, and dispose of them properly when the retention period ends.

1
Internal Revenue Service. Frequently Asked Questions: Do I Need a PTIN?
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Internal Revenue Service. PTIN Top FAQ 4
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Internal Revenue Service. Frequently Asked Questions: PTIN Application/Renewal Assistance
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Office of the Law Revision Counsel. 26 USC 6695 – Other Assessable Penalties With Respect to the Preparation of Tax Returns for Other Persons
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Internal Revenue Service. Frequently Asked Questions: E-File Requirements for Specified Tax Return Preparers
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Internal Revenue Service. Tax Pros: Apply to Be an IRS Authorized E-File Provider in a Few Simple Steps
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Internal Revenue Service. General Requirements for the Annual Filing Season Program Record of Completion
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Internal Revenue Service. Annual Filing Season Program
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Internal Revenue Service. Office of Professional Responsibility and Circular 230
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Texas Secretary of State. Name Availability FAQs
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Office of the Texas Secretary of State. Form 501 – Instructions for Application for Reservation or Renewal of Reservation of an Entity Name
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Texas Secretary of State. Registered Agents
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Office of the Texas Secretary of State. Business and Nonprofit Forms
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Secretary of State. Business Filings and Trademarks Fee Schedule Form 806
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Office of the Texas Secretary of State. Filing Options
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Texas Secretary of State. Express Services Index
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Internal Revenue Service. Get an Employer Identification Number
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Texas Comptroller. Taxable Services
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Texas Comptroller. Information Services
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Texas Comptroller. Form AP-201, Sales Tax Application
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Texas Comptroller. Franchise Tax Overview
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Federal Trade Commission. FTC Safeguards Rule: What Your Business Needs to Know
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Internal Revenue Service. A Written Information Security Plan Protects Tax Pros and Their Clients
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Internal Revenue Service. Data Theft Information for Tax Professionals
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eCFR. 26 CFR 1.6107-1 – Tax Return Preparer Must Furnish Copy of Return or Claim for Refund to Taxpayer and Must Retain a Copy or Record